Any experience w/ IB's non-default Smart Routing strategies?

D

drp7804

Hi all, this is admittedly my first post here (correction, second). Wanted to thank the general community here for good tips/advice in the forums. On to the post:

I'm trading US stocks with Interactive Brokers using their unbundled commissions option (via the TWS API). In the TWS Smart Routing configuration options, they offer 5 routing strategies:

1. Smart
2. Highest rebate
3. Primary exchange
4. Highest volume exchange with rebate
5. Highest volume exchange with lowest fee

By default, it looks like IB will set you up w/ the #1 Smart option (if you do unbundled pricing). Not sure what others have experienced, but for all of my liquidity-add limit orders, I'm averaging in the neighborhood of $0.004 per share for orders of 200 or more shares (ie: not affected by the $0.70 minimum). This isn't too much worse than the $0.0035 starting rate, but in a perfect world, if I were getting ECN rebates every time, I'd hope for a much lower net (like $0.002, etc). My guess is that smart routing is causing a percentage of my limit orders to remove liquidity (when routed off the primary exchange), and I'm curious about those other 4 options above.

I'm probably eating odd-lot charges every trade, but my guess is that doesn't account for the entire difference... as the "odd" portion of the trade would only be a fraction of the total size executed.

I intend to start experimenting with those other 4 options over the next X months to see if I can get some improvement in cost, but wanted to see if anyone here had already started down that path. Also curious if you've noticed any change in the percentage of limit orders getting only partial fills (assuming relatively similar size before and after switching strategies). Thanks in advance for any replies.

- Derek
 
I set TWS settings to use "Highest Rebate" for SMART routing. Majority of the times it routes to ISE, however I trade highly liquid products. Many times I have found it is better to route directly to ISE if you are adding liquidity with limit orders, and not bother with SMART routing.

If you change your order preferences (hide size, or show only certain size), I noticed that route to ISE simply stops and you end up getting charged for taking away liquidity by getting routed to other exchanges.

In short, it is not worth trying to troubleshoot what their SMART routing does as far as I can tell, again, as long as you are trading liquid products and you choose destination using directed option to the exchange with highest/higher rebate.
 
Thanks rasesh. I take it you're manually entering orders in TWS? IB adds some restrictions for API users like myself. They don't allow direct-routed orders w/ the unbundled pricing scheme, and charge $0.008 per share for bundled direct-routed orders, which basically makes smart-routing the least costly option if you use the API.

Anyone use the CTCI FIX interface w/ IB? Seems to me if you go this route, you're no longer using their API (yes?), and would thus be able to direct-route as desired. This might be a direction to consider over the longer-term... but probably not before at least trying those alternative smart-routing options.
 
I switched to "highest volume exchange with rebate" last night. Looks like the favored exchange is the NYSE, which has a $0.001 per-share rebate for adding liquidity. Also discovered the TWS option to "consider cost when routing"... and put a check in that box.

I'll trade this way for the next handful of days/weeks and see if we get some improvement...
 
I came across my old posts on this from last year and thought I'd do an update. I've been using "highest volume exchange with rebate" since the previous post and it has definitely been beneficial. My liquidity-add orders are averaging a net cost of around $0.0023 per share (when # shares >= 200). Not yet pulling enough volume to break into the cheaper commissions tiers.

Will try "Highest Rebate" next. No doubt execution costs will only stand to improve, but will have to see how fill success rate gets affected.
 
Quote from drp7804:

I came across my old posts on this from last year and thought I'd do an update. I've been using "highest volume exchange with rebate" since the previous post and it has definitely been beneficial. My liquidity-add orders are averaging a net cost of around $0.0023 per share (when # shares >= 200). Not yet pulling enough volume to break into the cheaper commissions tiers.

Will try "Highest Rebate" next. No doubt execution costs will only stand to improve, but will have to see how fill success rate gets affected.
More...

Any surprises with Highest Rebate? I'm guessing you're mostly executing on BATS.
I got slapped today when an odd-lot order got partially executed on ARCA. As I only trade Nasdaq, I'll be using Primary Exchange strategy for now.
 
Hi Derek

have you found a way to specify the SMART order routing strategy via the API ? To me, it seems like i can only manually specify per order in the TWS directly the strategy ?

Regards,

Oliver
 
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